Is Disney Stock A Buy Right Now, Ahead Of Next Week’s Earnings Report?


Walt Disney (DIS) recently cleared a new buy point after coming back more than 80% from its post-coronavirus crash lows in March.


It’s been a wild ride on Wall Street since February 2020, as the stock market fell into a bear amid the coronavirus crash. Disney stock got slammed as the Dow Jones company closed its theme parks and suspended Disney Cruise Line departures.

Shift For Dow Jones Disney Stock

And its quarterly results showed some of those ill effects. But now it’s looking forward as the world tries to shift into a post-coronavirus mode, even though Covid-19 cases and deaths continue to rise.

On May 11, Shanghai Disneyland opened for the first time since late January 2020, with limited capacity. Masks and social distancing measures were enforced. Tickets sold out within minutes for opening day.

Hong Kong Disneyland reopened in June but closed in July, due to new restrictions set by government and health authorities in Hong Kong. It reopened again Sept. 25.

The media and entertainment giant reopened Walt Disney World’s Magic Kingdom and Animal Kingdom July 11. Epcot and Hollywood Studios followed suit on July 15. But its California theme parks and resort hotels have been closed since mid-March.

On Sept. 28, Disney announced it’s axing 28,000 theme park jobs. It said in a statement that coronavirus uncertainty was “exacerbated in California by the State’s unwillingness to lift restrictions that would allow Disneyland to reopen.” (In November, Disney said it will lay off another 4,000 workers.)

In October, Disney announced a major reorganization, which boosted shares 3% the next day. Late last month, Disney+ made Nielsen’s Top 10 list of streaming titles for the first time ever, as the second season of its hit series “The Mandalorian” kicked off on Oct. 30.

On Dec. 10, Disney announced aggressive plans to boost its Disney+ streaming service.

Does that mean Disney stock is a buy right now? Read on to find out.

Good News For Disney+ Fans

On July 3, the movie version of blockbuster Broadway hit musical “Hamilton,” featuring the original cast, began streaming only on Disney+. It was originally planned to hit theaters in October 2021.

On Oct. 30, season two of the critically acclaimed Star Wars series “The Mandalorian” premiered. That could have the potential to drive more subscribers to Disney+.

At its Dec. 10 investor day, Disney said Disney+ subscribers were at 86.8 million as of Dec. 2. That’s up from 73.7 million in early October and 60.5 million in early August. Including Disney+, Hotstar, Hulu and ESPN+, the company’s streaming services have more than 137 million subscribers.

This year, Disney+ will expand to Eastern Europe, South Korea, Hong Kong and other markets.

The company now expects to have 230 million-260 million Disney+ subscribers by 2024, up from its prior estimate of 60 million-90 million for the same time frame, with global subscriptions across all services reaching 300 million-350 million. Netflix (NFLX), by comparison, has 195.15 million subscribers.

Bank of America analyst Jessica Reif Ehrlich maintained her buy rating on Disney stock and raised its price target to 192 from 166.

Disney shares soared nearly 14% Dec. 11 to a new high.

Coming To A TV Near You . . .

As many movie theaters remain closed due to the pandemic, Disney’s tent pole live-action movie “Mulan” went straight to Disney+ as a one-time premium offering in most markets. After months of delays, it was released Sept. 4 in the U.S., Canada, Australia and New Zealand for $29.99.

Disney+ downloads jumped 68% following the movie debut, according to researcher Sensor Tower.

Disney plans to roll out a new Star-branded streaming service this year, tapping content from ABC Studios, Fox Television, FX, Freeform, 20th Century Studios, Searchlight and other Disney-owned assets.

Then on Oct. 12, Disney announced plans to focus primarily on its streaming business, due to “the tremendous success achieved to date in the company’s direct-to-consumer business and to further accelerate its DTC strategy.”

It created a centralized global distribution group that will be headed by Kareem Daniel, formerly president of consumer products, games and publishing. The announcement comes as most movie theaters and many theme parks remain closed or are open with limited capacity.

New CEO Takes The Helm

Bob Chapek, chairman of Disney Parks, Experiences and Products, was named new chief executive after Bob Iger stepped down in February. Iger will stay on until the end of 2021 as executive chairman and direct Disney’s creative endeavors.

Under Iger’s 14-year-plus tenure, Disney stock soared more than 400%, or about 12% annualized. He revamped the theme parks, brought Star Wars, Marvel and Pixar into Disney’s movie universe, and launched Disney+.

Disney+ Continues To Grow

After the close Nov. 12, Disney reported a loss of 20 cents a share on $14.71 billion in revenue. Analysts expected a per-share loss of 68 cents on $14.34 billion in revenue, according to Zacks Investment Research.

Media networks revenue climbed 11% to $7.2 billion. Theme parks revenue sank 61% to $2.58 billion. Studio revenue tumbled 52% to $1.6 billion. But direct-to-consumer revenue, which includes streaming, jumped 41% to $4.85 billion.

The number of Disney+ subscribers rose to 73.7 million at the end of the quarter from 60.5 million in early August. ESPN+ subscribers more than doubled to 10.3 million, and Hulu subscribers increased 28% to 36.6 million.

Disney stock gained nearly 2% the next day.

Humble Beginnings

It’s hard to believe the $261 billion market cap behemoth started out in 1923 as Disney Brothers Cartoon Studio, by Walt and his brother, Roy O. Disney. Highlights along the way included Disney’s first sound film, “Steamboat Willie,” in 1928, its first feature-length animated film, “Snow White and the Seven Dwarfs” in 1937, and a foray into television in 1950.

In 1955, Walt’s theme park came into fruition as Disneyland in Anaheim. A second location in Orlando, Fla., was announced in 1965. The following year, Walt passed away, leaving Roy in charge. Walt Disney World opened in 1971, two months before Roy’s death. But the company kept growing.

During the fiscal year ended in September, the theme park and media giant generated nearly $70 billion in sales.

Disney Stock Fundamentals — And Earnings

IBD Stock Checkup assigns Disney a 37 Composite Rating, which combines key fundamental and technical metrics in a single score. The media giant ranks 13th in the 26-stock Media-Diversified group, based on that rating.

A 14 Earnings Per Share Rating reflects a five-year earnings growth rate of -7%, which includes a flat result in fiscal 2017, a 19% decline in fiscal ’19 and a 65% drop for fiscal ’20. Analysts now expect EPS to fall 27% in the current fiscal year ending in September, followed by a 218% jump in fiscal 2021, according to FactSet.

Disney will report fiscal Q1 results Feb. 11 after the close. Wall Street forecasts a loss of 33 cents a share on nearly $15.9 billion in sales.

Is Disney Stock A Buy?

After breaking out from a flat base and rising to record highs in November 2019, Disney stock tumbled more than 40% during the coronavirus market crash. It found a bottom on March 18 but has made its way back near its peak.

The stock is well extended from a 131.46 buy point of a double-bottom base, according to MarketSmith chart analysis. On Nov. 9, following President-elect Joe Biden’s win, shares gapped up and soared 12%. The breakaway gap yielded a higher buy point of 142.11, with the buy zone topping out at 149.22.

Disney stock is extended from that entry as well. On Dec. 8, it climbed past a 153.51 buy point of a deep, yearlong base. That buy range went up to 161.19. The 14% surge on Dec. 11 sent the stock to a new high.

Shares briefly dipped back into buy range the week ended Jan. 29, but quickly moved out of the zone. The rebound off the line, though, has set up a chance to buy or add a smaller number of shares.

The market is in a confirmed uptrend, which means investors can buy and add stocks at proper entries. Note that Disney’s 14 EPS Rating and 37 Composite Rating are well below the 80 minimum of most leading growth stocks.

Read The Big Picture for detailed daily analysis of what’s going on in the stock market.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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